Hungarian central bank lowers interest rates after almost 18 months

In December last year, the MNB began preparing the market for an interest rate cut being on the horizon. While the Monetary Council indicated that strict monetary conditions would need to be maintained, they also stated that decisions would be made on a month-by-month basis depending on the data received. Following the clear communication of the previous months, this signalled to investors that interest rate cuts were potentially imminent.

However, in January, the move was not yet justified, as December's inflation rate had been higher than expected, mainly due to price increases in services. Furthermore, the key January price adjustments, which can determine the inflation trajectory for the whole year, were not yet known. January's price increase statistics were lower than expected at 2.1%, after which there was little that could divert the central bank from its path of easing.

The vast majority of analysts surveyed by Portfolio beforehand had expected a cut of 25 basis points, so the Monetary Council's decision

to reduce the base rate to 6.25% was not unexpected.

As expected, both ends of the interest rate corridor were lowered by a similar amount alongside the base rate. Thus, from Wednesday, the overnight central bank deposit rate will be 5.25%, while the overnight secured lending rate will be 7.25%. This means that the symmetry of the corridor will remain intact.

According to analysts, further interest rate cuts could be announced in the coming months, potentially as early as March when the MNB publishes its latest Inflation Report. However, decision-makers may then wait until after the April elections and any subsequent market turbulence before making further decisions, although there may still be room for reductions in the base rate in autumn.

This decision is significant not only because there has been no precedent for it in the past year and a half, but also because it marks

the first time that the central bank, under the leadership of Mihály Varga, has adjusted interest rates since the presidential change in 2025.

The MNB will issue a statement on today's decision at 3 p.m., when Mihály Varga will also hold a press conference. Portfolio will be covering the events and market reactions live this afternoon.

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